New Apple Price Target After 'Best March Quarter Ever'

Once called the most important stock in our marketplace, Apple (AAPL) had lost its luster in recent years. Still very important. Still widely held. Still a member of the "Mag 7" after having been a charter member of "FANG."

However, Apple had focused on the expansion of its services portfolio that was still relevant primarily on devices and hardware. The firm had not been a leader in the advance of artificial intelligence and had not really been a part of the AI trade. Still, a well-run company, as these results will show. Still a good company, with what now seems to be a bright future with a new CEO. Let's talk about it.

On Thursday night, the greatest consumer electronics company in history, Apple, released the firm's fiscal second quarter financial results. For the period ended March 28, Apple posted a GAAP EPS of $2.01 on revenue of $111.184 billion. These top- and bottom-line numbers both easily beat Wall Street's expectations while that sales print was good for year-over-year growth of 16.6%. This quarter made for the fastest pace of sales growth acceleration for Apple since FQ4 2021.

Current CEO Tim Cook commented in the press release:

“Today Apple is proud to report our best March quarter ever, with revenue of $111.2 billion and double-digit growth across every geographic segment. iPhone achieved a March quarter revenue record, fueled by such extraordinary demand for the iPhone 17 lineup. During the quarter, Services achieved yet another all-time record, and we were excited to introduce remarkable new products to our strongest lineup ever. That included the addition of the iPhone 17e and the M4-powered iPad Air, along with the launch of MacBook Neo, which is captivating customers all around the world.”

John Tenus, a 25-year Apple veteran, will replace Cook as CEO in September. Cook will then ascend to the position of executive chair.

Operations

As already mentioned, revenue generation increased 16.6% to $111.184 billion. Within that number, sales of products grew 16.7% to $80.208 billion and sales of services grew 16.3% to $30.976 billion. How's that for well-rounded growth?

The total cost of sales popped 11.7% to $56.403 billion, leaving a gross profit of $54.781 billion as gross margin improved from 47.1% to 49.3%. Broken out, products-driven gross margin improved from 35.9% to 38.7% while services-driven gross margin improved from 75.7% to 76.7%. These gross margins all beat what had been projected.

Operating increases grew 23.7% to $18.896 billion. This left an operating income of $35.885 billion (+21.3%) as operating margin improved from 31% to 32.3% beating expectations. After accounting for interest, other income and expenses and taxes, GAAP net income landed at $29.578 billion (+19.4%). This worked out to $2.01 per fully diluted share, up from the year-ago comparison of $1.65.

Segment Sales Performance

iPhone generated revenue of $56.994 billion (+21.7%), beating expectations
Services generated revenue of $30.976 billion (+16.3%), beating expectations
Mac generated revenue of $8.399 billion (+5.7%), beating expectations
Wearables, Home & Acc generated revenue of $7.901 billion (+5%), beating expectations
iPad generated revenue of $6.914 billion (+8%), beating expectations

Geographic Sales Performance

Americas generated revenue of $45.093 billion (+11.9%), crushing expectations
Europe generated revenue of $28.055 billion (+14.7%), missing expectations
Greater China generated revenue of $20.497 billion (+28.1%), crushing expectations
Rest of Asia Pacific generated revenue of $9.138 billion (+25.3%), beating expectations
Japan generated revenue of $8.401 billion (+15.1%), crushing expectations

Guidance

During the post-earnings release conference call, CFO Kevan Parekh said:

"We expect our June quarter total company revenue to grow by 14% to 17% year-over-year, which comprehends our best view of constraint supply."

This implies revenue of $107 billion to $110 billion, which is well above the $102.5B that Wall Street had in mind.

Parekh added, "We expect gross margin to be between 47.5% and 48.5%."

Wall Street was looking for a rough 47.6%, so this is also a beat.

Fundamentals

For the period reported, Apple generated operating cash flow of $28.702 billion (+19.8%). Out of that number came capex spending of $1.971 billion, leaving free cash flow of $26.731 billion (+28%). For the first six months of the fiscal year, the firm has now generated operating cash flow of $82.627 billion (+53.3%). Out of that number comes capex spending of $4.344 billion, leaving free cash flow of $78.283 billion. From that number has come $7.743 billion in cash dividend payments and the repurchase of $36.989 billion worth of common stock.

Turning to the balance sheet, Apple has a "current" cash position of $68.507 billion and inventories of $6.747 billion making for current assets of $144.114 billion. Current liabilities add up to $134.641 billion, including deferred revenue of $9.331 billion, but also term debt and commercial paper of $10.307 billion. On the surface, the firm's current ratio stands at 1.07 which is passable. When adjusted for those deferred revenues, that ratio rises to 1.15, which is better.

The interesting thing about this balance sheet is that Apple has $78.088 billion in marketable securities labeled as non-current. Most firms would include this in their cash position. If done, the firm's cash position becomes an astounding $146.595 billion and its total current assets rise to $222.202 billion. That would put that adjusted current ratio at 1.77, which is much better. Total assets amount to $371.082 billion. of which less than 6% is considered to be intangible. That's more than fine. Total liabilities less equity comes to $264.591 billion, including term debt of another $74.404 billion. The firm could take care of its entire debt load almost two times over out of pocket if need be. This is a solid balance sheet.

Opinion

The quarter was excellent. Sales are accelerating. Margins are on the rise. Maybe Apple simply let everyone else carry the AI football while AI-related capex spending ran wild and they'll get involved when it makes sense from a cash flow perspective. It appears that this firm is and has been executing at a much higher level than most of Wall Street has or had realized. Let's give Cook the credit due for this performance.

Readers will see that AAPL had developed a cup-and-handle pattern with a $275 pivot that somehow managed to squeeze in a smallish double-bottom pattern of bullish reversal at the bottom. Yes, I missed that in real-time, too.

The stock has retaken its 50-day SMA, getting portfolio managers on board and recently tested its 21-day EMA, showing that swing traders are still invested. Relative strength is rather robust but not overbought. The daily MACD, below the chart, is bullish and will become more so on Friday. The stock is breaking out from the above mentioned pivot.

I will be long AAPL shortly after this article becomes public information. My target price will be $340.

At the time of publication, Guilfoyle had no positions in any securities mentioned.